18 months ago I relocated from my home town of Glasgow, to London, just 400 miles away. An important reason for the move was because I had just started working on my new startup, Teamly, and I know that location matters, even when running an internet business. Don’t kid yourself otherwise, your chance of success is seriously improved when you’re in a startup hub.

18 months later and moving to London has proved to be a smart move, for all the expected reasons, as well as the unexpected recognition by the UK Government of London’s startups with the launch a year ago of “TechCity“.

All creatives, including entrepreneurs, need to hang out with others in order to do the best work, and so creatives of different types congregate in hot spots for their activity. For tech entrepreneurs that is Silicon Valley and to a lesser (but increasing) extent London, New York, Berlin and Tel Aviv.

Hanging out with likeminded people is only possible when they are nearby and accessible.

What better way to get to know people than to have coffee with them? VC Mark Suster blogged on “Why you need to take 50 coffee meetings“. He says whether hiring (or being hired), building rapport with journalists, raising money or understanding customer needs, you need to get out of the building and meet people face-to-face. If you’re not in the right location you could probably still have your 50 meetings, but would you be meeting the right people?

The quantity and quality of meetings – whether planned or by chance – will be influenced by what Brad Feld calls “Entrepreneurial Density“.

Following his formula, I’ve calculated the entrepreneurial density of some of the top startup cities, using Startup Digest subscriber numbers as an inexact, but best guess at the size of the startup community, divided by the general population in the metro area, using figures from Wikipedia . (Then I’ve multiplied by 10,000 to get an integer).

Boulder: 52

San Francisco: 30

Austin: 15

Boston: 10

Seattle: 8

New York: 6

Washington DC: 6

Berlin: 5

London: 4

Chicago: 3

Los Angeles: 3

Paris: 2

Paul Graham again:

The problem is not that most towns kill startups. It’s that death is the default for startups, and most towns don’t save them. Instead of thinking of most places as being sprayed with startupicide, it’s more accurate to think of startups as all being poisoned, and a few places being sprayed with the antidote.

Finally, here’s a few examples from my last trip to Silicon Valley:

1. At TechCrunch Disrupt I (literally) bumped into the founder of a long-established and very successful enterprise software startup, and ended up talking to him for an hour, and getting some great advice. He wasn’t even attending Disrupt, he’d come along for his buddy’s book launch. (His buddy was Eric Ries!).

2. I got an intro from a Scottish ex-pat, to a Palo Alto VC, who in turn connected me with one of Google’s Mountain View engineers responsible who worked on Google Apps from the start. Again, a long conversation and great advice followed.

3. Another entrepreneur friend tweeted an entrepreneur, and suggested coffee. That coffee meeting resulted in an introduction to Matt Mullenweg of WordPress, a really great intro for my friend given what his start is doing.

4. I was parking my rental car on University Avenue, Palo Alto when I looked up and saw an entrepreneur I know from London walking down the street. So I quickly jumped out the car and ran over to say hi. The guy he was with turned out to be James Hong, founder of Hot or Not.

Thanks for reading, I’d love to know your thoughts. Have you relocated, if so why? Would you NOT relocate, if so, why not?

In the UK angel investment may lag significantly behind the US, but it’s not for lack of incentives. If you’re raising money in the UK from angels, you need to know about the Enterprise Investment Scheme (EIS), and make sure your startup qualifies.

EIS is a very attractive HMRC tax incentive scheme that provides three great benefits for angel investors:

An upfront bonus in the year of the investment of 30% relief against income tax. So, for example, your angel can invest £100,000, but in return he’ll get a £30,000 discount on his next tax return. So he’s only out of pocket for £70,000!

Partial protection of financial losses: investments that fail get a further relief against income tax. A 50% tax payer would only lose £35,000 on a failed £100,000 investment.

Successful exits are tax-free: gains are exempt from Capital Gains Tax, which currently saves 18%.

So for these three reasons most UK angels really care about making EIS approved investments. For your investors to get EIS relief there are some qualifications, here are the most important ones:

Your investors make an equity investment (not a convertible loan)

Your investors get common shares (not preferential)

Your company has less than 50 staff and assets of less than £7M

Your company is raising less than £2M

Your company must be a UK limited company

To make things easy, you can apply now for EIS Advance Approval with HMRC, and I really recommend you do so as it makes your startup more attractive than one without advance approval, (and loads more attractive than an investment which doesn’t qualify). As it takes a few weeks to get the approval, do it before you start talking to investors.

What you need to do to get EIS Advance Approval for your startup:

It’s actually very simple – you don’t need to pay an accountant or anyone else to do this for you – I sent a one page letter, and some of the following info to HMRC:

Company accounts (management accounts are sufficient)

Business plan

Memorandum and Articles of Association

Any agreements between you and potential shareholders

Within a short time I had a phone call from them asking me one quick question, and then shortly after that a letter confirming that my company, Teamly Ltd, was given advance approval.Read more about EIS on the HMRC website, and download the Advance Approval form here.

Please note I’m neither a lawyer or an accountant, so you should read the HMRC advice yourself but the main point I want to make is you can take the initial step yourself; don’t pay anyone to do it for you.

Those were the words spoken last night at a Taylor Wessing / Tech City event by Anil Hansjee, who used to do M&A at Google in Europe, and is now setting up a seed stage fund here. He did clarify by saying that yes, there have been some deals but “you can count those on a few hands”. Anil is just confirming what us entrepreneurs already know, but here it is coming from a soon-to-be VC and one that knows the market really well.

Anil backed it up by saying that of the 80 inbound pitches he’s received since an article appeared on TechCrunch about his new fund in June, 75% merited a closer look, confirming that the quality of opportunities in Europe appears high. (And a majority of those were from UK based startups). I imagine that’s just scratching the surface of what startups are out there chasing funding.

When Anil’s fund is ready to start investing you should be aware that if your startup is not located in a cluster with a functioning ecosystem, then he won’t be investing and will give you the advice that you should be relocating to the best ecosystem for your industry. He specifically cited SaaS or cloud infrastructure startups where in most cases the best place to be is the Valley; to stay in London would damage your chances of success and funding. But there is some good news, there are plenty of areas where London is the right choice to be if your focus is on fashion, music, finance, advertising, retail, etc.

John Frankel is a Brit who is a partner at New York based ff Venture Capital and during a visit back home this week he gave a great talk to a mixed audience of developers and entrepreneurs at the regular London Web meetup. John’s fund, which he describes as “a micro VC or super-angel”, helps companies go from “3 to 30 employees”. ff has invested in companies like Voxy, Cornerstone OnDemand, Phone.com, Mogotix, Klout, ShareSquare and many more.

You can watch the entire talk and Q&A below, or just read on:

ff typically invests in 4 – 12 companies in a year, but since December have invested in 15. The reason? John was unequivocal, this is an “interesting time with unbelievable opportunities for both investors and those seeking to change the world”. The reduction in cost of doing business online in the last decade means that mass customisation is now possible and software can create new and immersive experiences.

This disruption has entered every industry, citing Paige Craig, John told us that “every company is a technology company“. The platforms that didn’t exist 10 years ago are now in place: broadband, smartphones, cheap storage, etc.

He told how Jim Cramer of CNBC’s show “Mad Money” spoke at a conference John attended during the previous dot com boom, telling the story of how the media industry has these massive fixed costs through the legacy of newsprint production, by growing trees, waiting till they are mature, chopping them down, transporting them hundreds of miles, turning them into pulp, transporting paper hundreds of miles into cities usually, making newspapers from them, and then finally putting a pile on every street corner; every 24 hours.

Fast forward ten years and we have Amazon’s kindle, Apple’s iPad, and numerous inexpensive smartphones. John is certain that this time round “this is not a bubble“, although he did indicate they may slow down their investment pace if valuations get too high.

Advice for startups

“Solve big problems, they are more satisfying”.

And he used the example of the Winklevoss twins to tell us that “everyone has ideas, but execution is everything”.

Geography

Being in London – with its perennial inferiority complex- of course the question of geography came up. John said that ecosystems are made by people and infrastructure, and despite the ability to use Skype, meeting “in person is important”. Although he’s prepared to invest almost anywhere it’s harder to justify if that company is off the beaten track. Another crucial geographic factor is big companies being in the vicinity of startups, as is the presence of second-time entrepreneurs.

Talking from his US experience he compared NYC as very individualistic to San Francisco is more team orientated, and collaborative, gaving the example of one of their portfolio companies relocating there for that reason.

What he looks for in investments

“The team”. And “unreasonable and driven people”. He says “pivoting is normal; the start idea is never the same as the end idea”. Specifically he likes companies with low capex model, and those that start charging for their product early, talking of the benefit of “training” your customer to pay.

He cited an example of one company they backed, the enterprise software company Cornerstone OnDemand of whom they were amongst the first outside investors in and since 2002 they invested in all 8 subsequent rounds until it went public in March 2011. Despite that incredibly successful exit, John says he doesn’t “believe in exit strategies”, and puts faith in interesting things happening and valuable things being created if you let smart people do interesting things.

I really enjoyed his talk, and I hope John spends more time in London, we need more of this kind of seed VC in the UK.

If this is your visit time visiting my blog, please feel free to subscribe by email or RSS, which you can do in the right hand column, thanks.

Marc Andreessen (who co-wrote the first web browser, and is now a VC having invested in Facebook, Twitter, and others) published a fantastic essay on how software is revolutionising the world in the Wall Street Journal.

I urge you to read it all, and show it to any young people you know. If you know anyone making education choices now, they need to know about this.

Andreessen’s thoughts echo those that Google Chairman, Eric Schmidt talked about recently at a speech in London, where he talked of the incredible power of computer science to change our lives for the better in the coming decades.

Here are a few of the key snippets from Andreessen’s essay:

More and more major businesses and industries are being run on software and delivered as online services—from movies to agriculture to national defense. Many of the winners are Silicon Valley-style entrepreneurial technology companies that are invading and overturning established industry structures. Over the next 10 years, I expect many more industries to be disrupted by software, with new world-beating Silicon Valley companies doing the disruption in more cases than not.

On why America is leading this charge:

It’s not an accident that many of the biggest recent technology companies—including Google, Amazon, eBay and more—are American companies. Our combination of great research universities, a pro-risk business culture, deep pools of innovation-seeking equity capital and reliable business and contract law is unprecedented and unparalleled in the world.

But he has a warning of what it takes for individuals, and countries to take advantage of this increasingly digital world:

Many people in the U.S. and around the world lack the education and skills required to participate in the great new companies coming out of the software revolution. This is a tragedy since every company I work with is absolutely starved for talent. Qualified software engineers, managers, marketers and salespeople in Silicon Valley can rack up dozens of high-paying, high-upside job offers any time they want, while national unemployment and underemployment is sky high. This problem is even worse than it looks because many workers in existing industries will be stranded on the wrong side of software-based disruption and may never be able to work in their fields again. There’s no way through this problem other than education, and we have a long way to go.

I couldn’t agree with that more, and I hope to see more kids studying maths and science, and more enrolling in Computer Science courses at University; that skill more than any other is what’s going to power the digital innovation we expect to see and it’s a skill that commands a premium. Traditionally parents like to see their children go into a professional occupation such as medicine and law, but Computer Science rightly deserves a place in this list.

[Google’s Eric Schmidt, speaking at the Edinburgh Television Festival criticised Britain’s education system for teaching kids how to use software, but no insight into how it’s made and warned that Britain is squandering its rich heritage in computing].

Computer Science was the course that (amusingly) both Bill Gates and Mark Zuckerberg dropped out of, but it’s a course that the founders of most leading web companies all have in common, including Google’s Larry Page and Sergey Brin, as well as Amazon’s Jeff Bezos.

If you know a smart and mathematically inclined student, please point out the existence of Computer Science, and my belief that the ability to write computer code will become an even more important skill in the coming decades as computers, software and the internet become even more prevalent. I’m not saying all kids should go and study this course, but I hope they are all at least aware of it and consider it. (I wasn’t and didn’t).

The interesting thing about the ability to program is that it means you are not only eminently employable by massive corporations but you also have a relatively rare skill which enables you to be self-employed doing contracting, or become an entrepreneur and start your own online business. I really don’t think there’s many skills which are quite so much in demand or quite so flexible!

I’ve been working on raising a seed round for my startup, Teamly, and it’s become really clear to me from my experiences and from speaking to other entrepreneurs that the UK really lacks a culture of seed investing and this is starving potentially great companies from creating jobs and wealth. There’s no shortage of schemes to encourage and accelerate entrepreneurship, but what’s being done to get more people to get involved in angel investing here?

But what exists to encourage angel investing? Should we be encouraging people to set up businesses when there is a lack of capital to help nurture and develop these new businesses?

Perhaps you’re an individual of high net worth and you’ve heard about the excellent Enterprise Investment Scheme (EIS) tax breaks, if you went on to the HMRC website you wouldn’t exactly feel inspired. Even if you manage to find the official British Business Angels Association you will find just a one page introduction to angel investing. Come on guys, you can do better!

I have an example of the type of person we should be encouraging to angel invest: he is the founder of a very successful online retailer who recently exited for multi-millions to a publicly listed company. After 15 years of hard work this entrepreneur has bought a million pound house in the countryside and is sitting on the rest of his money while he relaxes. This is someone who has valuable domain expertise, and could really play a part in funding and advising the next generation but has opted out from that. This wouldn’t happen in silicon valley, where money is far more likely to be recycled, and a new generation of entrepreneurs and businesses are created with help from the advice and money of those who have gone before. I know there are countless other examples of successful entrepreneurs that somehow get into angel investing. It’s definitely a virtuous circle, if you received angel funding you’re more likely to subsequently become an angel.

It’s not just that we need more capital in the system to seed companies, but we need better quality angels as well. One unintended consequence of the EIS scheme is that it perhaps encourages those who aren’t really cut out to be an angel to look at it as an alternative to a deposit account. Dragons’ Den is perhaps a double-edged sword, while it definitely raises the profile of angel investing and entrepreneurship I cringe at the thought of the imitators across the country trying to be all hard nosed and dragon-like. (I met one such individual… shudder… not a fun meeting).

The existing angels we do have are also spoiled for choice because they are getting the opportunity to invest for equity on deals which ought to be funded by bank debt. This is down to our non-functioning banks who won’t lend even to established businesses with proven track-records. If you are an angel, with limited resources (money) and limited capacity (time) for doing deals, which would you rather go for? The seed stage startup doing something new and innovative which could be huge, but so far hasn’t delivered any revenue, or the long established company in a traditional sector you understand which just needs some additional capital to generate more revenue and profits?

What about VCs, are they seed funding startups? According to BVCA figures quoted in Management Today, funding for startups declined from £125m in 2009 to just £46m in 2010. This is another area where our friends in silicon valley do much better as there are far more VCs doing seed deals, and some that specialise in only these type of deals. The underinvestment in seed stages though makes it less likely the VCs will find those juicy later stage deals, because less companies will get to that stage without an influx of early capital. Without an infusion of capital early on many great companies are dying before they’ve even had a chance.

What needs to happen:

1. We need to raise the profile of angel investing and share best practice.

2. We need to encourage more “smart” angel investors to enter the system.

3. We need to encourage newer investors and other sources of “dumb” money to invest alongside “smart” money so that the money goes further and can help more startups.

4. We need to ensure the banks lend to the businesses that are bankable so that angel’s risk capital can be freed up for the deals it ought to be funding.

5. We need to encourage more VCs like Passion Capital to be set up and invest at earlier stages.

But who can make any of this happen? Fortunately this Government is listening and responding to matters involving the economy and job creation. Last night at an event organised by SkillsMatters I put some of these suggestions to Eric van der Kleij, the head of Number Ten’s new Tech City Investment Organisation and I was delighted with his positive response: He genuinely loved the idea to encourage more angel investing and said it’s going to the “top of the list”, and seemingly reading my mind said “there must be a TV show in this!”

Do you have an idea for how we can encourage this new wave of seed investing in promising UK startups?

Please contribute in the comments!

Here’s 3 ideas of mine to get the ball rolling:

1. Reach out to high net-worth individuals you know and ask them to consider angel investing.